OUCH! 3 LESSONS FROM WOOLWORTHS AUSTRALIA'S EPIC LOYALTY FAIL

Woolworths announcement in late August of a $1.235 billion loss (its first in 23 years on the ASX) no doubt has its shareholders rattled and its board on notice. While the reasons for the failure are legion, much of the red ink can be squarely attributed to the disastrous performance of the company’s new ‘Woolworths Dollars’ loyalty scheme…

The expensive relaunch of the Woolworths Rewards loyalty scheme in November 2015 certainly looked like a winner. The website was modern, the branding on the cards looked great, and its mobile app appeared to be the business. There was a problem though — Woolworths Rewards didn’t really do much rewarding.

After canning its association with Qantas points late in 2015 (a scheme where shoppers earned a point for every dollar spent instore) Woolworths tried to drive behavioural change (usually a good idea in a loyalty scheme) by rewarding its customers for buying specific items. The concept was straightforward enough. Products instore were ascribed a ‘Woolworths Dollars’ value. Buy those products and the allocated Woolworths Dollars would accrue to your card. Then, when the card’s balance hit 10 Woolworths Dollars, 10 real world dollars would be deducted from your bill. Problems loomed quickly, however.

We’ve acknowledged that we didn’t deliver enough orange ticket offers in store and while many of our members have been rewarded well, too many have not.

— Ingrid Maes, Woolworths director of loyalty and customer data.

LESSON 1: THERE HAS TO BE A REWARD

The immediate issue for Woolworths was that only a tiny percentage of items instore had a Woolworths Dollar amount associated with them — meaning customers could easily spend hundreds of dollars a week and not earn a cent. Compared to the Qantas points scheme it replaced, the new Woolworths Dollars program was perceived by its users as stingy. The following criticism on productreview.com.au was typical of member reaction;

“I spend on average $300 a week on groceries. For the past 4 weeks my balance on my reward card is $9.97. That means I need only 3 cents to get to the minimum $10 back. I have spent nearly $1200 but can’t even earn 3 cents!!! That sums up the hopelessness of this program. Crazy. Meantime Coles has sent me an offer to spend $140 a week for 4 weeks to earn $50. Guess where I’ll be going?”

(Note: While it’s still early days, the replacement scheme Woolworths launched in August appears better configured to both reward customers and boost profits, as high-margin items like fresh meat and veges are allocated double points — incentivising shoppers to purchase them).

LESSON 2: APPLY THE KISS PRINCIPLE TO PROMOTIONAL COMMUNICATIONS

Woolworths are not alone in this, and it’s a marketing fundamental that bears repeating. Any promotional communication sent to loyalty scheme members must be easily comprehended. In general terms, the issue might be that the marketing teams who devise promotions are too immersed in their product. They know it inside out and perhaps assume everybody else does too. They know for example, that purchasing a Gift Card won’t go towards a targeted spend and neither will alcohol, cigarettes or cell phone top ups. They know that a couple whose cards are linked can’t earn points towards each other's promotion. They know that members may wait weeks to get their rewards even though their till receipt says ‘Congratulations you have earned $10 Woolworths Dollars’. The loyalty scheme members, however, don’t know any of this — and in Woolworth's case, the upshot was often contact centres put under pressure by confused customers needing to be painstakingly talked through what should have been the simplest of campaign mechanics.

LESSON 3: PROOF YOUR EMAILS - THOROUGHLY

While Woolworths did manage to get on top of this during the final months of its Woolworths Dollars scheme, mistakes, gaffes and inaccuracies in promotional emails plagued its launch phase. Both technical and content errors were commonplace — with the net result frequently being some scheme members were either unable to take part in promotions, or did not receive their rewards after weeks of loyally hitting their targeted spends. Again, calls to the contact centre spiked routinely — and that was just from the members who bothered to call. Many just went somewhere else.

20/20 Hindsight – In Advance?

While simultaneous attention to detail and a focus on simplicity could have addressed many of the tactical issues with Woolworths Rewards, a deeper strategic appraisal suggests more thorough modelling would also have been beneficial. For example, the impact of dropping Qantas points could have been assessed using data analysis, as for many customers this was the primary reason they shopped at Woolworths, and they left in droves when it was removed. At the same time, the number of orange ticketed items required in store to positively impact consumer behaviour could also have been modelled. Woolworths had counted on its suppliers diving in to underwrite wide-ranging orange ticket discounts, but its PR agency says the program was not ‘sold’ to suppliers as well as it could have been — and as a result the specials were few and far between on the shelves. Data analysis would have identified the consequences of this shortfall and suggested a launch delay until the situation had been addressed.

Ultimately, after nine months of bad press and customer desertion to competitors Coles, the company dumped the new scheme late in August 2016 and returned to a tried and true ‘spend a dollar, earn a point’ regime. “We are pleased that our members have responded positively to automatically getting money off their shopping,’’ said Ingrid Maes, Woolworths director of loyalty and customer data. “However, we’ve acknowledged that we didn’t deliver enough orange ticket offers in store and while many of our members have been rewarded well, too many have not.’’